Domo, Inc. Q1 FY2021 Earnings Call

Welcome to Como's First Quarter FY '21 Earnings Call. At this time, all participant lines are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. And with that, I will hand the call over to Peter Dowry, Dooms Vice President of Investor Relations.

Good afternoon and welcome. On the call today, we have Josh James, our Founder and CEO, Bruce Felt, our CFO and Julie Keno, our Chief Communications Officer. Julie will lead off with our safe harbor statement and then onto the call. Julie?

Our press release was issued after the market closed and is posted in the Investor Relations section of our website, where this call is also being webcast. Statements made on this call include forward-looking statements related to our business under federal securities laws, including statements about financial projections, the plans and expectations for our go-to-market strategy, our expectations for our sales and new business initiatives, the impact of COVID-19 on our business and our financial condition. These statements are subject to a variety of risks, uncertainties and assumptions. For a discussion of these risks and uncertainties, please refer to documents we file with the SEC, in particular, today's press release, our most recently filed annual report on Form 10-K and our most recently filed quarterly report on Form 10-Q. These documents contain and identify important risk factors and other information that may cause our actual results to differ materially from those contained in our forward-looking statements. In addition, during today's call we will discuss Onondaga financial measures which we believe are useful as supplemental measures of Como's performance. Other than revenue, unless otherwise stated, we will be discussing our results of operations on a Onondaga basis. These Onondaga measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. Please refer to the tables in our earnings press release for a reconciliation of our Onondaga financial measures to their most directly comparable GAAP measure. With that, let me hand it over to Josh.

Thank you, Julie. Hello, everyone and thanks for joining us for the call. Before I begin discussing the quarter, I want to express that the safety of our employees, their families, and our customers has been a top priority as we operate through this health crisis. Our people have been working from home in a fully distributed fashion since mid-March. I'm incredibly proud of how quickly they've adapted, especially the great care they've shown our customers and the rapid delivery of solutions for the new challenges our customers are facing. Many of the challenges of the moment have highlighted the unique strengths of our platform. I'm very pleased with our Q1 results, particularly given the backdrop. In Q1, we posted a 23% increase in subscription revenue, and a 19% year-over-year increase in total revenue, and much better than expected billings and cash flow. And mostly I'm excited about the guidance and the position it puts us in for the future.

Thank you, Josh. We had a strong Q1, continuing the momentum that we experienced in Q3 and Q4 of last year. I’ll now review the details behind our performance followed by providing second quarter and fiscal 2021 full year guidance. Our Q1 billings of $46.5 million, a year-over-year increase of over 13%, was driven by our ability to quickly adjust our go-to-market efforts towards companies and the healthiest sectors of the economy. Additionally, we were able to adapt our product to respond to governments in need of data to manage the crisis. Specifically to our government response, we were able to close $4.5 million of recurring new business selling our COVID-19 Crisis Command Center during the quarter. At the same time, we generally benefited by having a low percentage of our business from very small companies, as our sales force is already conditioned to primarily selling via phone, and we have an installed base that has a considerable amount of white space for us to further expand into. In addition, our renewal rates were above 85% in a seasonally slow quarter. Given the economic environment, we're pleased with this outcome. We have 57% of our customers under multi-user contracts at the end of Q1. Our remaining performance obligations, or RPO, grew 17% compared to the same quarter last year. Q1 revenue was $48.6 million, a year-over-year increase of 19%. Subscription revenue represented 87% of total revenue, reflecting our focus on specifically growing recurring revenue. International revenue in the quarter represented 24% of total revenue compared to 25% in Q4. Our subscription gross margin was 79%, up more than 2 percentage points from 77% in Q1 of last year. We made that progress against a 60% plus annualized spike in customer usage volume that we've experienced since the pandemic began. Nevertheless, we plan to obtain additional leverage of our subscription cost to revenue over time, as we continue to effectively manage our data center operations. In Q1, operating expenses decreased by 9% from last year, even though revenue increased by 19% year-over-year. In fact, looking even further back, our quarterly expenses are about $15 million lower than two years ago when the company had a much smaller scale of revenue. I would point out that the vast majority of our $35 million in fiscal '21 cost reductions, which are reductions against our original plan, will be realized in Q2 to Q4. And the impact of those reductions in Q1 was minimal. The net effect of increased revenue while effectively managing costs allowed us to improve our operating margins by 34 percentage points from the same quarter last year. Our net loss was $18.4 million, and net loss per share was $0.65. This is based on 28.5 million weighted average shares outstanding, basic and diluted. Turning now to our balance sheet. As of April 30, we had cash, cash equivalents and short-term investments of approximately $88 million. To reiterate what we've told you numerous times since going public, we are confident we can and will be cash flow positive, with plenty of cash remaining on the balance sheet when that occurs. We continue to look for ways to further reduce our cash burn and are disciplined around this effort. Our adjusted net cash used in operations was $9.3 million, an improvement of $6 million over the prior quarter, and a 58% reduction compared to Q1 of the prior year. We believe we'll be able to exit this year with a quarterly cash burn rate that is low enough to provide confidence we will comfortably reach self-funding sustainability. Now, the formal guidance for the second quarter of fiscal '21, we expect GAAP revenue to be in the range of $48.5 million to $49.5 million. We expect a net loss per share of $0.48 to $0.52. For the full year of fiscal '21, we expect GAAP revenue to be in the range of $194 million to $200 million, representing year-over-year growth of 12% to 15%. We expect a net loss per share of $1.96 to $2.06.

In closing, we're pleased with our results for Q1 and feel prepared to successfully navigate through these uncertain times. With that, we'll open up the call for questions.

Thank you. Our first question comes from Sanity Singh with Morgan Stanley. Your line is now open.

Hi, this is actually Chris on for Sanity. Thank you for the question and congratulations on a really solid quarter, and I really appreciate the detailed assumptions you've been disclosing behind the guidance. Can you maybe talk about the progression of business and demand trends throughout the quarter, especially as we zoom in on from early April to quarter end? What you've seen since in May and through early June? That would be really helpful. Thanks.

That's a good question, Chris. I'll answer this briefly, Bruce, and then let you give a lot of details. From last quarter, at the beginning, things were looking good. And we gave the guidance that we gave, and we felt pretty good about things. And then as it became apparent that COVID was going to have a meaningful impact on the world and accordingly on our business, we kind of went into panic mode for a minute, certainly. And it was all hands on deck. If our travel customers and finance customers and other customers are suffering business, what are they buying? It became pretty apparent quickly that with our platform and the ability to pull data from all kinds of sources and give people access to data in real-time when these moments certainly when days matter. It presented itself as an opportunity to us. It started with that track that we’ve created. We were talking to a lot of different states at different times, and we were helping. With our state, I brought in probably about 10 million different pieces of PPE that I facilitated and helped the state procure. We were just right in the middle of these conversations and because of that, it became apparent that they needed data and they needed answers. They needed to know what was going on. They were making decisions blindly, and they weren't built to do that. So we were able to say, yes, we can help you out. And thankfully, there were some contracts that we were able to secure. We did such a good job with Utah that they were calling other governors for us and introducing us and our team. It was quite amazing, the effort that they put in. We normally have company meetings where we highlight a few employees and say here are the few employees that really stood out this quarter. We had a Zoom virtual company meeting and highlighted about 80 people who had pulled multiple all-nighters instead of the usual eight or ten people that get highlighted. We said, if we are pulling multiple all-nighters, they need to be highlighted. It just showed that everyone was ready and willing and wanted to help. We provided service for these customers and it changed the course of how they responded to things and helped them save lives, which was really cool. In the process, they had money and were willing to pay for it. Instead of selling other types of solutions, we were selling solutions focused on the command center. So, that was kind of how that stuff evolved. It was interesting to see different parts of the world respond differently. Japan was closed down early and working from home early, and they were still closing deals. Japan did really well for us. It was a quarter that really highlighted the power of our platform.

Yes. And to build on that, in March, when we were at our Utah customer conference, we said we haven't seen anything yet but we're prepared to cut costs as soon as we do. Then we went into April, and March finished out fine. We went into April and we had some of the fastest sales cycles we've ever had with these Crisis Command Centers. April was strong. Now we're into May. I can tell you that May was off to a good start. We are pleased with our performance at the beginning of Q2, and we like everybody else is still worried about what may happen in the economy, how it may impact our customers, how it might impact us, but we're happy to be here today just saying that the pacing is good and they closed out well.

Yes. I mentioned in my prepared remarks that our command center has positioned us at the center of a crucial conversation involving not just state governments, but every company worldwide as they seek to return to work. This situation raises numerous questions that many organizations have never had to confront or prepare for before. Thanks to our COVID tracker and the successes from our state command centers, we are being asked how to facilitate a safe return to work, manage contact tracing, ensure proper facility cleaning, and determine the tools and systems necessary for facility managers. We are genuinely enthusiastic about our capacity to deliver significant value to our clients during this time, and we believe it will positively impact our business.

Got it. That's really helpful. Could I tag on follow-up questions? You mentioned early in the script $4.5 million of recurring business from the Crisis Command Center. At the same time, you have less headcount now, but you've slightly raised the full year revenue guidance. Is this more a function of stronger than anticipated contribution from deals like the Crisis Command Center? Or are you embedding assumptions around improved sales force productivity? Thanks.

Well, I would say that without the Crisis Command Centers, the core business still aligns with guidance. So we're happy with that. The renewal rates have performed better than last year, and the May results are even stronger. The new business comment of how we're off to a good start in May does not include these new products. So I would say that we're happy that we had the opportunity with these new products, but we still had a strong and valuable business without them. In this environment, we also benefit from not having much exposure to troubled industries and having a salesforce that is conditioned to selling over the telephone.

The other thing you’ve mentioned before, Bruce, is that the guidance does not include any of the significant deals. There may be state deals we are discussing, and we are very well positioned to succeed in this environment. Our platform facilitates remote work and provides data to every employee. We are receiving frequent requests from customers asking us to add additional features for them. Therefore, we believe we can perform very well in this context.

Got it. Thank you. Congrats again.

Thank you. Our next question comes from Brad Nickel with Credit Guise. Your line is now open.

Hey, it's Mark on the line for Brad Nickel. Congrats on the quarter. I just wanted to ask you again, just about the Command Center. It's great to hear some of the state wins that you have in the quarter. Can you talk about just the opportunity that you see there going forward? Even as we start to exit the pandemic, is that something that there's potential for account expansion?

Yes. It’s one of these situations where they have a real problem right now. We can fix it right now quickly and provide some tremendous value. The moment that we got in there, all of our SWAT teams were focused on helping our customers. Their number one initiative, besides solving the current need, is to get more data in there and to get more additional items so when it comes time for renewal, we're in a fantastic position to not only renew it but potentially upsell them other products and services. We're already seeing that. These governors are genuinely excited about the success we're bringing. We have three fantastic flagship customers, and I think that we are going to have a decent opportunity to build a significant government business out of this.

Thanks. That's helpful. And just as a follow-up, I wanted to ask if you could provide any comment on Ian's progress since he transitioned to the role of CRO?

Yes, I think, we're really excited about Ian. We had the advantage of being able to watch him, run Europe and interact with the executive team. He has brought a tremendous amount of follow through and organization, which we needed. Ian and John Miller have really partnered together to focus on efficiency, accountability, and maximizing our response rate. We've seen the pipeline grow, and while we can't predict customers closing at historical rates, we are in a great position. So, we've been very pleased with Ian's contributions.

Thanks and congrats again.

Thank you.

Our next question comes from Jennifer Lowe with UBS. Your line is now open.

Great. Thanks and congrats on the quarter. Maybe to start, it sounds like you're seeing a lot of momentum around these use cases that are very catered to the current environment. I'm just curious, as you look in your pipeline, how meaningful are things like return to work in terms of the deal volumes you're seeing relative to more traditional business? What are the sales cycles and the new versus existing mix like for that relative to your historical mix?

When we give guidance, it's not based on us having a big chunk from new initiatives. It's based on selling our platform, and we have quarters of history to look at for predictions on sales cycles. Even regarding the big deals or new initiatives, those would be gravy. We're excited about them. The sales cycles are indeed faster, as people are trying to figure out how to get back to work. We’re engaging with C-level executives and seeing that we are well equipped and organized with the knowledge to solve their problems regarding data.

Okay, great. And maybe just one last question for me for Bruce. Looking at the cost cutting, it sounds like the cuts were predicated on a downside scenario. So far that downside scenario hasn't played out as it could have. If revenues come in higher, is there an expectation that the cuts lead to getting to profitability a bit faster, or could we see a start of spending again? How should we think about the timeframe?

We are going to be cautious about adding staff until we get more clarity on how the macro environment develops. In the short run, our performance is going to help our cash position. If we see traction and pipeline that requires more feet on the street, we will add sales capacity, but it won't be dramatic this year. We will think this through carefully before any significant increases.

Great, thank you.

Thank you. Our next question comes from Pat Ravens with JMP Securities. Your line is now open.

Great. Thank you and congratulations Josh and Bruce on the quarter. So Josh, sort of rewinding, prior to the COVID-19 crisis, it felt like you were focused on areas like sales operations, marketing operations, financial operations, and improving your partnership motion. Has COVID-19 changed the focus for the sales force? Can you update us on the status of those partnerships?

The sales plays are performing really well. Our salespeople are running these plays and seeing strong performance. We're gravitating to what works and the partnerships as well. We're holding more training sessions on Snowflake, and we see partners reaching out. The partner network is not moving the dial significantly yet but we're becoming more relevant.

Okay, great. Thank you. And Bruce, can you drill down a little on the retention rate? What do you see in terms of SMB versus enterprise? What are you doing in terms of concessions for customers?

There hasn’t been a significant difference between enterprise and corporate retention rates. As we enter the new quarter, our renewal rates have improved. We've accommodated short-term requests for concessions to the smallest businesses and troubled industries with about $1.5 million absorbed in the quarter. We've preserved, if not increased, the total contract value in those cases.

Okay, that's super helpful. Thank you.

You're welcome.

Thank you. Our next question comes from Derrick Wood with Bowen & Company. Your line is now open.

Great, thanks. It's Andrew Sherman on for Derrick. Congrats on the great quarter. You mentioned the strength in grocery and the quick shift that Rev’s made to those strong sectors. What other sectors are you seeing strength from? What is your mix of those in total?

We have extremely diversified industry distribution. Unless it's a troubled industry, the majority of industries are engaged with us. Everybody's working from home, needing data to run their business. I think businesses are looking for data more aggressively as they reopen. We're finding a positive response across all industries. We expect consistency and are seeing growth.

Great. Thanks. Maybe for Josh, you've done a lot of seminars with C-level executives lately. Do you think this environment will be the catalyst for change that they needed to realize that they need a real-time solution?

Yes, for sure. This has forced C-level executives to understand they need real-time information about their people and their business. It has opened their eyes to the importance of having tools to answer questions they’ve never faced before. We see many upsell opportunities now.

Some upsell opportunities are outright replacements. Our customers are telling us that current solutions are inadequate to meet today's challenges.

Awesome. Thanks.

You're welcome.

Thank you. Our next question comes from Bhavan Sari with William Blair. Your line is now open.

Hey guys, thanks for squeezing me in here at the end. Josh, I want to touch on the fiscal 2021 sales playbook focus on the five specific personas. Can you give an update on the traction you’re having with that new playbook model? Has there been any changes due to COVID?

Yes, it's resonated really well for us. We've seen traction with the sales plays and are working to distribute information effectively. We're solving business challenges that our customers face. The focused approach helps us get in the door while also allowing us to expand within existing customers.

Absolutely, we've seen a significant benefit from narrowing our focus through our sales plays. The language we use, the way we engage provides strong value propositions that solve critical business challenges. After we demonstrate success, we can expand our use base within existing customers.

That's basically my question. You've tried to figure this motion multiple times. Has that new messaging and persona approach resonated with customers? Is it playing out as expected? Or is it still a work in progress?

Yes, the pricing and sales execution have been strong, especially with enterprise accounts. The sales team is effectively conveying value and demonstrating return on investment. This has helped alleviate pricing pressure.

Got it. Thanks for taking my question, guys.

This concludes the question-and-answer session. Ladies and gentlemen, today's conference is now over. Thank you for participating. You may now disconnect.